Thursday, Jun 26, 2008
Do they have something to hide ?
BBC News website: B&B puts block on Resolution move
Investment group Resolution, which wants to pump £400m into troubled UK lender Bradford & Bingley has been denied access to the bank's books.
Posted by angonamo @ 08:37 AM (601 views) Add Comment
12 Comments
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1. str 2007 said...
I want to know when the banks are going to start calling for equity top ups on BTL portfolios.
Prices are clearly going to be 10% down in the next few months if not already.
That puts any 85% LTV property well into top up territory.
It also brings 75% LTV portfolios upto top levels.
And the average 66% LTV portfolio only 10% further falls away from top up levels.
Given the average BTL property will have fallen further than average, these banks should be chasing 'middle england' now for the substantial equity tied up in their main residence.
Banks such as B&B are clearly short of cash, they should be calling in equity now to ensure a level of security against their BTL loans.
2. waitingfor hpc said...
the answer is for all to savers to STAY AWAY from risky banks - i have!
That will do the trick on its own.
3. jamonit said...
Yes, but which are the risky banks, as opposed to safe?
4. wdbeast said...
"Investment group Resolution, which wants to pump £400m into troubled UK lender Bradford & Bingley has been denied access to the bank's books"
They can't open their books to anyone, then they would see the truth!
They are insolvent!
The deal for the US funds was secretly brokered and funded by the BOE to stop another Northwen Rock fiasco.
5. techieman said...
Sorry but in response to waiting i am repeatin a semi related post of yesterday.
"str - if banks acted as cartels then they would never push up LTVs. Because of competition thats what they did. The reverse is also true. For them to stop falls from the affordabilty point of view they should in concert restrict falls of LTV. They wont because they are in competition. This then becomes a vicious downward spiral - and is what we are seeing now, as they head for the exits, they must restrict their lending more than the next guy or else be over-exposed.
When will this end? Thats anyone's guess.
Mine is that the banks will in time find a level they are comfortable with - this will depend on each others loan book. I would be surprised if average LTVs in bands have not been examined in a very detailed (postcode probably) manner and that these are being marked to market going forward. The overriding concern for them is of course their own solvency. Now i dont know about tier 1 and tier 2 capital etc, but who that interacts with the solvency may cause me to modify what ive just said."
Now relating that here the stats we need to see from the lenders are their banded LTVs. Now it could be argued that because of the compensation scheme all lenders are tarred with the same brush, and all deposits are covered. Thats as may be but if you put that to one side, and we are only interested in the UK loan book (so diversification into other loan areas COULD be ok) , then this is the stat i would like to see. Of course if another one - eg B&B (which is desperately trying to get some retail deposits as we speak) bites the dust then there could be some very serious questions (at least) raised. Of more interest to me at this stage is what is happening relative to this in the US. Event risk of a bank going under must be a possibility.
6. techieman said...
wdbeast - great point - what business doesnt allow a prospective buyer - or significant investor - access to its books. Blimey, now where are those B&B puts?
7. str 2007 said...
Techieman
I agree with your points for New Business and Re-mortgages.
Some BTLers will have tied in 5-10 year deals at 5% or so a year to 18 mnths ago.
Will these borrowers be asked to top up mortgages to 15% (85% LTV) equity levels and who/how will they value portfolios to judge the level of 'top up' required.
8. techieman said...
str 2007 - i think if there (the lenders) solvency depends on it then yes. Otherwise it would be another red flag, unless this was taken proactively as a recomendation by the BSA (which it should do as that might detract attentions from the poor performing BS) as for the Banks then i would have thought they would basically stick two fingers up. Having said that because of the likes of HBOS - Halifax and Barclays - Woolwich some concerted action across all lenders would be more likely.
Having said that you have hit the nail on the head - its the valuations that are the issue. (i wrote about this in the past couple of days). If valuers start to factor in further falls to discount current values, (dont think so yet but maybe) then this creates more of a problem. Initally a problem (especially if coupled with top-ups) for the borrower but eventually a problem for the lender as downside pressure is thereby increased. As i said i would love to hear from any valuers (they can stay anonymous) as to whether they have any instructions relative to their valuations.
In commodities and futures your position to determine whether or not more money is required to keep you liquid in your positions, is always marked to market. With a homogeneous freely traded product thats easy, but with HPs its a little more difficult......at the moment!!!
9. techieman said...
grammar ! - Their of course! There there! Whoops!
10. str 2007 said...
Techieman
As you said in your preious post the banks/building societies are competing with one another and I wonder if we will see them suddenly get 'missile lock' on equity they have the right to call on.
It won't make them popular with their clients but business is business and BTL is a business.
I hadn't thought particularly to split Building Societies from Banks - you feel they'd have a different perspective on whether to chase for top ups ?
As a small side issue - if a BTL loan had been packaged up and sold on - does the buyer of said SIV have the right to demand top up of equity.
BTL mortgages were originally issued on the basis of loans covering 125% of repayments which was relaxed and I don't believe checked properly anyway (they just asked the estate agent who was selling the house what it would rent for & guess what the answer was normally 125% of the loan required.) If they look into the history of payments recieved against a property in a re-mortgage situation and then run the 125% rule I believe alot of BTLers will struggle to re-mortgage anyway.
Brief calc 200k 2 bed flat at 66%LTV = 132k mortgage @ 6% = 7.92k pa repayment / 12 = 660 per month repayment * 125% = £825 per month rental income required. That to me is right on the limit and doesn't account for voids and set up of mortgage costs etc.
11. techieman said...
str - well they have demonstrated as a group their short-sightedness, so i have no doubt that there are possibly considering this at the moment. The distinction i was making between banks and BS was that generally BS are seen as friendly and if a BS were the first to do this then I think they would get some bad PR. Borrowers are members after all. If they get desperate - and look down the barrel of a gun, then yes.
I think Banks are more likely to do this though - all other things being equal. If things dont get much worse then they probably wont do this, the reason being they have a debt that they can enforce against the BTLr anyway. Now they will have to closely monitor because it obviously depends on the persons other assets.EG if they have equity in their house then that starts to erode too its more likely they will push the button.
However im no expert and since ive never been a BTLr i dont know the checks they make.
I dont know realtive to your side issue, but if it keeps getting sliced and diced then who would make the decision? In those cases the lenders / "investors" in the SIvs would seem to me to be more at risk re their MBSs, they are more at risk anyway -but thats another story. It would be good to see the documentation relative to a securitised first tier MBS agreement, agian not really my area.
12. str 2007 said...
I maybe wrong as I guess banks won't want to start that particular ball rolling - but if they did a huge collapse could get under way.